Pfizer Inc. (PFE) No Longer A Buy At Jefferies

Jefferies downgraded Pfizer Inc. (NYSE:PFE) from Buy to Hold and lowered its price target from $39 to $36 in a research report dated October 13. Analyst Jeffrey Holford bases the decision on “a lack of drivers/ catalysts, lowered estimates and perceived incremental M&A risk.”

The analyst believes that key drivers that originally drove Pfizer’s upgrade have either played out (including new potentially blockbuster drugs like Ibrance and Prevnar) or failed to materialize (including a tax-inversion deal and split between the company’s established and new drugs businesses). Pfizer’s proposed mega-merger deal with Dublin-based Allergan, worth over $160 billion, came to an abrupt end earlier this year, dashing the pharma giant’s hopes to shift headquarters to the tax-friendly country of Ireland. Last month, Pfizer also announced its decision to keep its two businesses together, despite the poor performance of its older drugs segment for several years which has been bogging down new drug growth.

Mr. Holford and his team said that while they were most excited about the accelerated approval of Pfizer’s breast cancer drug Ibrance this February and its stronger-than-expected launch, consensus estimates for the drug were now ahead of their own mid-term forecasts. “We note that recent prescription trends indicate that the US opportunity is becoming saturated as patients are beginning to roll off treatment as rapidly as new ones are recruited,” the analysts said, adding that while European launch may renew growth in 2017, new competitors expected in US by 2HFY17 will add more pressure to the franchise.

After accounting for Pfizer’s recent decision to dispose off its infusion business acquired with Hospira last year and other business trends, the Jefferies analysts lowered their revenue and EPS estimates by up to 3% and 7%, respectively. “ Our revenue estimates are now 2%-4% below consensus between 2017E-19E, with our EPS estimates between +1% to -4% vs. consensus in the same period,” they said.

The analysts also expect the pharma giant to engage in more aggressive M&A going forward to drive stronger growth. Although they believe management can find attractive assets, it is very likely Pfizer may overpay for them due to M&A competitiveness in the pharmaceutical industry.